I took the "admin law" class in law school. It was deadly dull and the professor didn't breathe any life into it.
But suddenly in 2024, admin law is very much alive. It's now the hot area of law for many businesses, especially those in regulated industries.
For the sake of brevity, the term “administrative law” is doing double-duty here, since constitutional law principles underlie virtually all administrative law developments.
Administrative Law Is Suddenly Very Interesting
Last week the Supreme Court issued several decisions with sweeping repercussions:
Securities and Exchange Commission v. Jarkesy et al. On June 27, 2024, the Supreme Court stripped the SEC’s ability to use in-house tribunals to seek civil penalties against defendants for securities fraud, finding that the Seventh Amendment entitles a defendant to a jury trial. Other agencies, including the EPA, have relied on similar administrative enforcement mechanisms that are now constitutionally suspect.
Loper Bright Enterprises v. Raimondo. On June 28, 2024, the Supreme Court’s Loper decision reversed the “Chevron Doctrine,” a 1984 precedent that, until last week, required courts reviewing challenges to an agency’s rules or actions to defer to the agency’s interpretation of any ambiguities in applicable legislation. Courts will no longer defer to an agency’s statutory interpretations in determining whether an agency’s rules are appropriate or permissible under applicable statutes. The Loper decision does not diminish Congress’s ability to expressly delegate authority to federal agencies, but courts will no longer infer delegation from statutory silence or ambiguity. It has also been shown that following the adoption of the Chevron Doctrine, agencies roughly doubled their regulatory rule-making, meaning that Chevron’s reversal could slow down rulemaking activity.
Corner Post, Inc. v. Board of Governors of the Federal Reserve System. On July 1, 2024, the Supreme Court determined that the Administrative Procedures Act's (APA) six-year statute of limitations for challenging federal regulations starts when a business is adversely affected by the regulation, not the date the regulation was enacted. This means that the six-year time limit for suing to invalidate a rule does not begin to run until after a party has been impacted by it, for example, after beginning to operate a business impacted by a specific rule. Combined with Loper overturning the Chevron Doctrine, wide-ranging recent and not-so-recent regulatory edicts will be challenged.
Edison Electric Institute et al. v. FERC, et al. On July 2, 2024, the onslaught against alleged regulatory overreach began, as the Supreme Court issued nine orders directing federal courts to reconsider a wide range of decisions “in light of Loper Bright Enterprises v. Raimondo 603 U.S.__ (2024).” The order directed the 8th Circuit to reconsider FERC’s interpretation of statutory limits regarding which solar power facilities will qualify to force a local electric company to buy their power at above-market rates.
This is Just the Beginning
Regulated businesses and their counsel should pay close attention to relevant pending cases. They should also consider whether other suits are warranted to address rules and regulations that exceed statutory authority or otherwise run afoul of the APA.
While many well-considered rules and regulations fall within their cited statutory foundations, others do not. Regulators have understandably extended their regulatory reach under cover of the Chevron Doctrine for forty years. Regulatory deference quite predictably drove regulatory expansion.
The following are just some of the recently proposed or adopted rules imperiled by the Chevron Doctrine's demise:
The SEC’s Climate Disclosure Rules. Few rulemakings have attracted more litigation than the SEC’s climate rules. Suits are pending in five federal circuits. Plaintiffs will argue that the rules exceed the SEC's statutory authority and constitute impermissibly compelled speech in violation of the First Amendment.
The FTC’s Rules Invalidating Non-Compete Agreements. The FTC’s recently promulgated rules prohibiting and invalidating non-compete agreements looked to be in trouble even before the Chevron Doctrine was overturned. Multiple lawsuits have been filed against the rules. On July 2, 2024, a federal court issued a limited preliminary injunction and stay of the rule. The order enjoining the rule applies only to the named plaintiffs, but observers are predicting a full injunction in August.
The FDA’s Proposed Rules for Laboratory Developed Tests. On May 29, 2024, the American Clinical Laboratory and others sued the U.S. FDA challenging the FDA’s rules that would regulate laboratory-developed tests as medical devices under the Federal Food, Drug and Cosmetic Act, claiming the rules exceed the FDA’s lawful authority and that they are arbitrary, capricious, and contrary to law.
The DOL’s Independent Contractor Rules. The Department of Labor released final rules in January of 2024 making it harder for companies to classify workers as independent contractors instead of employees. As of March 2024, four federal suits had been filed by freelance writers, a trucking company, and plaintiffs in construction, financial services, and the tech sector. The suits claim the rules violate the APA and exceed DOL’s authority under the Fair Labor Standards Act.
On July 5, 2024, the Washington Post published an article captioned “8 Policies that Could be Vulnerable to New Legal Challenges” that addresses other recent agency actions now at greater risk of reversal.
Another interesting area will be cryptocurrencies and other tokenized assets. The SEC has regulated crypto not through thoughtful rulemaking, but through civil and criminal enforcement actions.
The SEC’s questionable crypto strategy has been to deem every digital asset a security under the four-part Howey test and then crush it with litigation. The Howey test requires there to be: (i) an investment, (ii) in a common enterprise, (iii) with an expectation of profits, (iv) from the efforts of others.
How is the "efforts of others" element of Howey met when crypto tokens have already been issued and are fully functional? At that point, they're a bit like Beanie Babies, no?
Given the SEC’s strained classification of all crypto assets as securities under Howey, the loss of agency deference could cause more adverse rulings in the SEC's already troubled crypto enforcement cases.
The Road Ahead - Litigation, Regulatory Caution, Legislative Responses
Industry associations, chambers of commerce, and business-friendly litigation teams will be on the lookout for costly, overreaching rules and regulations to challenge, so this is just the beginning of an epic regulatory reset.
The situation is somewhat like what happened when the America Invents Act of 2011 made it easier for third parties to challenge erroneously issued patents before a new administrative tribunal, the Patent Trial and Appeal Board (PTAB).
There were so many bogus "business method" patents to challenge that the PTAB was nicknamed the Patent Death Squad. In its early years of operation, the PTAB invalidated more than 80% of patents challenged.
There are just as many vulnerable rules and regulations now as there were bogus patents, and litigants are likely to choose their post-Chevron targets with reasonable care. Expect a substantial number of rule invalidations.
Regulatory rule-making will almost certainly change for the better following these decisions. Fewer questionable rules are likely to be proposed, the requirements of the APA are more likely to be observed, and proposed rules are more likely to have well-articulated statutory foundations. It is also reasonable to assume that Congress will be more careful in drafting legislation. These would be significant improvements.
Unfortunately, some otherwise beneficial rules and regulations will be invalidated under Lopez and Corner Post. But Congress can always step in and clarify its intent with new legislation where there's consensus to do so.
More likely than not, though, we're now in a prolonged period of regulatory contention and uncertainty.
My newest Google Alerts are now "Chevron Doctrine," "exceeded statutory authority," and "violated the APA." What are yours?
Paul Swegle, editor of the StartupGC Blog, serves as in-house chief legal officer/general counsel to numerous tech companies and has advised countless others. He has completed $18+ billion of financings and M&A deals, including growing and selling startups to public companies ING, Capital One, Nortek, and Abbott. Paul teaches entrepreneurship law at Gonzaga Law and Seattle University School of Law and speaks regularly at other top law schools and MBA schools where his popular business law books are widely used in courses focused on entrepreneurship and business law.
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